Expense Reclassification: To accurately reflect the reciprocity of services among departments, and to counteract special accounting transactions, certain expense accounts are reclassed to different departments. In some cases, revenues are earned and expenses incurred which are not related to the care of a patient. These cost centers may be eliminated altogether.
Revenue Offsets: Other operating revenue (e.g., cafeteria, gift shop, etc.) and certain types of non-billed patient revenue typically cannot be captured in CCA through the Hospital patient billing system, but these revenues are included in "Net Operating Income" on Hospital financial statements. As such, these revenues must be offset against appropriate expense accounts, thereby reducing the cost which reaches CCA.
Fixed-variable cost designation: Typically, nonsalary cost is designated as either entirely fixed or entirely variable globally by G/L subaccount. Some accounts (e.g., utilities) may behave as semi-variable linear functions. In our opinion, salary cost behaves as a step function within an appropriate relevant range of volume, implying that, for small changes in volume, salary is essentially fixed. In our most advanced salary models, we advocate a multiple scenario fixed-variable split. To wit, we define:
Minimum core staff as the number of FTEs, working at peak efficiency, required to cover the lowest reasonable monthly volume (always fixed);
Core staff as the number of FTEs, working at peak efficiency, required to cover to average monthly volume (the difference between minimum core and core is swing staff, and is either fixed or variable depending on the application); and
Variable staff as the number of FTEs required to cover high volume which cannot be covered by core staff working at peak efficiency (e.g., overtime, per diem labor, etc., always variable).
For the purposes of the PCM project completed for eTBA Hospital, the Hospital chose to use globally-assigned variable percentages for each expense account.
Cost Componentization: As CCA is designed to accommodate a maximum of fifteen "components" of cost at the department and procedure level, detailed G/L subaccounts aggregated into logically summarized groups. These groups are:
Fixed Med/Surg Supply
Variable Med/Surg Supply
Fixed Other Expense
Variable Other Expense
It is these components of cost which are allocated from overhead to revenue centers during the management stepdown, and ultimately from revenue center to procedures in CCA. The seven components listed above are expanded to fourteen when the overhead allocation creates an indirect version of each.
Overhead Allocation: Based on appropriate departmental statistics, overhead costs are allocated to revenue centers using the simultaneous solution methodology available in Trendstar. This method more accurately models the reciprocal exchange of services among overhead departments than does the single, hierarchical allocation utilized for the Medicare Cost Report. The process results in an indirect version of each cost component defined above, for each revenue center. The total of indirect cost in revenue centers after the stepdown matches overhead direct cost before the stepdown. Note that revenue center direct cost is not affected by this process.
Transfer to CCA: A mapping scheme is executed to interface this fully-allocated HSL cost to a corresponding CCA cost table. However, since fully-allocated cost in the HSL is unidentifiable as either inpatient or outpatient, while CCA contains inpatient data only, this transfer process makes the following adjustment:
|HSL fully allocated cost in cost component detail
HSL in- and out- patient revenue
|CCA inpatient cost in cost component detail
The revenue-based adjustment is department-specific, and deals not only with the inpatient-outpatient split, but also with any timing differences between the accrual-based HSL data and discharge-based CCA data.